Struggling Retailers Offer Post-Christmas Discounts Retailers battered by a dismal holiday selling season are offering eye-popping discounts, trying to persuade wary consumers to loosen their purse strings and help salvage businesses' bottom lines before the new year. But analysts predict a bumpy retail ride well into 2009 and perhaps beyond.
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Struggling Retailers Offer Post-Christmas Discounts

Retailers battered by a dismal holiday selling season are offering eye-popping discounts and imploring the shopping gods to persuade wary consumers to loosen their purse strings and help salvage businesses' bottom lines before the new year.

But with preliminary numbers suggesting that big box discounter Wal-Mart and online merchandiser Amazon will be among the only winners emerging from the crucial December buying period, analysts are predicting a bumpy retail ride well into 2009 and perhaps beyond.

"It is not likely this last week of the year is going to save December," says marketing strategist Britt Beemer, whose America's Research Group tracks consumer behavior. "It's not going to be good for a while."

Luxury Goods Take Huge Hit

Total retail sales, excluding automobiles and gasoline, were down 2 percent in November compared with last year and 4 percent in December through midnight Dec. 24, according to MasterCard Inc.'s SpendingPulse unit, which reports on national retail and service sales from a macroeconomic perspective.

The luxury goods sector took an enormous hit, down 34.5 percent from a year ago. And online sales suffered their first holiday decline in seven years, according to ComScore, a national sales tracker. Economists are portraying the recession as the worst in at least 25 years.

The handful of shopping days left before the end of the all-important fourth accounting quarter, coupled with increasing consumer concern about job security, means there simply isn't enough time — or sufficient buyers' will — to make up for a deep retail downturn that began to gather momentum in October, analysts say.

Minimizing The Damage

Historically, only about 14 percent of December's retail activity occurs in the last week of the month, Beemer says, though that number has been growing in recent years.

Scott Krugman of the National Retail Federation says retailers are rallying to make a shopping event out of the final days of the year, but he acknowledges that the overall numbers "are troubling."

"The industry had a lot working against it — recession, bad winter weather and five fewer shopping days between Thanksgiving and Christmas than last year," he says. Retailers in coming days will be making calculations about how deeply they'll have to discount merchandise to avoid having excess inventory on hand.

"When you have to ask the question, 'Do I want to just move this merchandise, or keep it at a total loss?' the answer is you want to clear it out," Krugman says. "They're looking in this week to minimize the damage."

The federation has already asked Congress to approve three 10-day periods of tax-free shopping in the new year in an effort to encourage consumer spending.

Black Friday, Bad Weather Boost Wal-Mart, Amazon

Retailers and analysts are also puzzling out why Wal-Mart and Amazon defied the economic odds and ended up posting good numbers. This at a time when unemployment filings are at a 25-year high, consumer spending has been falling, consumer confidence is at its lowest ebb in the 41 years such data have been collected, and anxiety about job and housing security has engulfed much of the nation.

Beemer theorizes that Wal-Mart created momentum with historic discounts for post-Thanksgiving "Black Friday" shoppers.

"They made a decision in the beginning to go after Black Friday and hit it with an incredible offer on televisions," says Beemer, author of The Customer Rules: The 14 Indispensable, Irrefutable and Indisputable Qualities of the Greatest Service Companies in the World.

Other electronics retailers, for example, may have been offering name brands at a discount, but Wal-Mart offered lesser-known brands that were hundreds of dollars cheaper.

"They took these price points down under what anybody has ever seen," says Beemer, whose research shows that if you shop at a store on Black Friday, there's a 44 percent chance that you'll return to that store before the season is over. "Retail is a game of momentum, and Wal-Mart had the momentum. They won the war."

Some analysts have also suggested that those most affected by high gasoline prices earlier this year may have been discount-store regulars who benefited from the dramatic price decline in recent months. One analyst estimated that the gas price decline was equivalent to a tax cut of up to $300 billion.

Amazon, the online retailer that sells everything from books to cookware, posted its best holiday season ever. It reported selling 6.3 million items on its busiest day, Dec. 15. Amazon most likely benefited, analysts say, from the bad winter weather that struck much of the nation in the weeks leading up to Christmas.

But, for most retailers, the season was dismal, and the prospects for many remain dicey going into the new year. Like the rest of the country, they are waiting to see what's in the stimulus package that the Obama administration and Congress are expected to approve next month.

"The economy has affected everyone," Krugman says. "It's not who the big winners are, but the degree of loss more than anything."

A Glimmer Of Hope?

Michael McNamara, vice president of research and analysis at SpendingPulse, found a glimmer of hope in December's data. But it's a glimmer that suggests just how tough the retail market has gotten. Declines in some retail sectors, he says, appeared to stop getting worse in recent weeks.

"When we were going through October, the year-to-year declines kept getting worse, and those numbers are pretty tough to swallow," McNamara says. "But there was a firewall." Footwear sales, for example, had been down about 13.5 percent from the previous year but in the most recent four weeks were down about 10 percent. Likewise, he says, men's apparel in recent weeks was down 9.8 percent, compared with declines that exceeded 14 percent earlier in the season.

"There are some signs of life," McNamara says. "2008 was about identifying and diagnosing problems, and now it seems we're in the problem-solving phase."

The new year, McNamara says, will be less about discovering problems than about solving them and moving toward recovery. But just how long that will take is anyone's guess.